Macroeconomics Chapter 10

The curve that shows the level of real GDP purchased by consumers, businesses, government and foreigners (net exports) at different possible price levels during a time period, Ceteris Paribus

Real Balances Effect, Interest Rate effect and Net Export effect

Consumer spend more on goods and services because lower prices make their dollars more valuable.

An increase in the price level increases borrowing demand and in turn higher interest rates, which discourages consumer spending.

Exports (X) decrease and imports (M) increase, which decreases real GDP through the Net Exports component (X-M).

Consumption (C)
Investments (I)
Government Spending (G)
Net Exports (X-M)

The curve that shows the level of real GDP produced at different price levels during a time period, Ceteris Paribus

Because product prices and wages are fixed or rigid.

Keynesian Range, Intermediate Range and Classic Range

Equilibrium occurs where the Aggregate Demand Curve equals the Aggregate Supply Curve.

Real GDP increases while the price level remains constant.

Both Real GDP and the price level increase.

The price level rises while the real GDP remains at the full-employment level.

Lower Labor Cost, Lower Oil Prices, Lower Taxes and Reduced Government Regulations

A rise in the general price level resulting from an increase in the cost of production that causes the AS to shift leftward.

High unemployment and rapid inflation exist simultaneously.

A rise in the general price level resulting from an excess of total spending caused by a rightward shift in the AD curve.